Bringing Africa’s vast informal economy into the formal sector could unlock as much as $125.3 billion in additional public revenue every year, according to the 2025 African Economic Outlook published by the African Development Bank (AfDB).
The report identifies informality as one of the most pressing obstacles to domestic capital mobilization across the continent. Currently, between 50% and 65% of economic activity in Africa is conducted informally, outside official tax, legal, and regulatory frameworks. This, the AfDB warns, represents not only lost revenue but also missed opportunities to raise productivity and expand access to finance.
The report links this widespread informality to weak enforcement mechanisms, burdensome registration processes, and a low level of trust between citizens and state institutions. Many small enterprises remain unregistered to avoid taxes or lengthy bureaucracy. But in doing so, they also forgo legal protections, credit access, and structured growth support.
The Bank argues that reforms focused on governance, simplified processes, and public trust could dramatically shift the landscape.
“Transitioning from informal to formal activity for Africa’s businesses could generate $125.3 billion annually in additional revenue,” the report notes.
It further emphasizes that easing business registration and tax procedures, coupled with stronger civic engagement, would improve compliance and revenue generation.
“By simplifying business registration processes and tax filing procedures, and enhancing social contracts with citizens, Africa can increase revenue collection by reducing informality,” it states.
Ghana reflects this continental challenge vividly. According to the 2024 Integrated Business Establishment Survey (IBES I), an overwhelming 92.3% of businesses in Ghana operate informally. Despite a massive increase in business numbers, from 640,000 in 2014 to 1.87 million in 2024, only a small fraction comply with formal registration, taxation, or labour standards.
The dominance of micro-sized enterprises, particularly those with fewer than five employees, paints a clear picture of the country’s business ecosystem. These firms now make up over 90% of all businesses in Ghana.
However, their limited scale and informal status severely restrict access to financial services, social security systems, and legal protections, reducing both their resilience and their contribution to broader economic development.
While informal firms provide jobs and support livelihoods, the AfDB stresses that formalization brings broader economic benefits. These include increased output, better job quality, and stronger linkages to formal financial institutions.
“The potential revenue and output gains from reducing informality in Africa can be even higher through productivity improvements,” the report says.
There are macroeconomic implications too. Global experience suggests that formalization drives long-term growth.
“Global evidence shows that reducing informality by 10 percentage points could increase GDP growth in emerging markets and developing economies by 1–2 percent annually,” it adds.
The AfDB also urges African governments to consider how domestic investment mechanisms, particularly pension funds, can support this transformation.
